Bloomberg News

China’s Policies Fueling ‘Growing Frustrations,’ Locke Says

September 20, 2011

(Adds comments from interview starting in ninth paragraph.)

Sept. 20 (Bloomberg) -- U.S. Ambassador to China Gary Locke said the Asian country’s business climate is leading to “growing frustrations” among business and government leaders abroad, planting “seeds of doubt” in the minds of investors.

“There is a gap between the goals China identified in its five-year plan and the steps it is taking to achieve them,” Locke told U.S. business executives in Beijing. “Goals like expanding domestic consumption and fostering innovation require an acceleration and expansion of the economic reforms China has undertaken in the last few decades.”

Business groups including the Beijing-based American Chamber of Commerce in China, which hosted Locke today, are increasingly concerned that China aims to boost its companies through subsidies and anticompetitive rules at the expense of foreign companies. The European Union Chamber of Commerce in China said this month that discriminatory laws and regulations still impede its members in the world’s second-largest economy.

Locke said that foreign businesses face “substantial restrictions” in industries from “health care to energy to financial services and several others.” To ease investor doubts, Locke said China should abolish restrictive practices like requiring “joint ventures in so many fields” and allowing both local and foreign companies to “make investment decisions without expansive government interference.”

Credit Cards

Access for financial firms was an area of concern, Locke said, singling out credit cards where he said China’s restrictions had created a domestic monopoly that failed to best serve consumers’ needs. State-owned banks were also skewed toward serving government-sector companies, he said.

“A more open and diverse Chinese financial system would help spur China’s economic reform efforts by helping finance the most dynamic firms in the economy and by putting more money in the pockets of the Chinese people through better savings options,” Locke said.

Foreign companies are shut out of industries such as mining, power generation and transportation altogether through China’s policy of selecting “national champions,” he said.

China’s policies deny its companies from receiving technology, management skills and jobs that more investment would bring, as well as “creating seeds of doubt in the minds of foreign investors as to whether they are truly welcome in China,” he said.

Mutual Benefit

In an interview with Bloomberg Television following the speech, Locke said more Chinese openness to U.S. goods would help the country meet its goal of shifting away from an investment-heavy growth model to one based more on consumption.

“We believe that the introduction of American companies, the participation by American companies, will actually benefit the Chinese,” Locke said in the interview.

In a report in March, AmCham found 24 percent of respondents to an annual business climate survey said China’s economic reforms had done nothing to improve the environment for U.S. businesses in the country, up from 9 percent who said the same in a poll released last year.

China’s government hasn’t lived up to Premier Wen Jiabao’s pledge last year that foreign companies would receive equal treatment, the EU chamber said in a report released Sept. 8.

Carmakers must take a Chinese partner and are limited to a 50 percent stake in their ventures, while telecommunication companies are effectively shut out from the world’s biggest mobile phone market, the report said. Foreign banks’ ownership of domestic financial firms is capped at 20 percent and overseas wind-turbine makers must tie up with local rivals on the grounds of “national security,” it said.

Locke said China’s reform process would be aided by letting its currency, known as the yuan or renminbi, appreciate.

Global Responsibility

“Allowing the renminbi to appreciate more rapidly would help reduce inflation, including the price of goods and services coming into China, allowing Chinese consumers to buy more with the income that they have,” he said.

Locke said China had a responsibility as the world’s second-biggest economy to help revive global growth, adding that reforms and greater market access were “critical to creating jobs in America.”

Wen this month said developed nations shouldn’t rely on China to bail out the world economy, and must cut deficits and free up their own markets. The U.S. should “ditch” protectionist measures and “open their arms” to Chinese investments, Xinhua News Agency said in a commentary today.

‘Houses in Order’

“Countries must first put their own houses in order,” Wen said Sept. 14 at the World Economic Forum in the Chinese city of Dalian. “Developed countries must take responsible fiscal and monetary policies.”

China had a “huge stake” in ensuring the health of the U.S. economy, Locke said in the interview. The U.S. is China’s biggest single trading partner, and the $273.1 billion U.S. trade deficit with China last year was equivalent to about 5 percent of China’s gross domestic product.

“It is in their economic self-interest to have a strong and growing U.S. economy where more people in America are working,” Locke said.

Locke, 61, a former governor of Washington from 1997 to 2005, also represented the state in Congress from 1982 to 1993. From 2005 to 2008, he was a partner at Davis Wright Tremaine LLP, a business and litigation law firm that represents clients in the U.S. and China.

--Michael Forsythe, with assistance from Stephen Engle in Beijing. Editors: Patrick Harrington, Ben Richardson

To contact Bloomberg News staff for this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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